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Here are what some real retirees and pre-retirees want to achieve in retirement and what they worry about*. Followed by some expert advice to help you look forward and plan your retirement with confidence.
I’ve got big plans for retirement
“I want a full and active life. I want to do art and travel. I want to spend time with my children and grandchildren, who are all over Australia, and enjoy friends, food and good times.” Fiona age 62.
“I want at least two holidays a year, including one overseas. I want to be able to replace my car with a new one when I need to, keep up my home maintenance and eat out regularly. I also want to be in a position to help my three sons financially if they need me to – though, of course, I haven’t told them that.” Danny age 65.
“It is important to my wife and I to have financial independence to allow the flexibility of at least one extended holiday a year and to be able to eat well and dine out on a regular basis with friends and family.” John age 72.
I’m worried about meeting my basic needs
“I want a reliable supply of money to meet my basic needs, and allow me to see family and do a little travelling.” Viv age 70.
“I don’t lead a lavish lifestyle. I just want to be happy, healthy and able to cover all the usual costs of living.” Steve age 60.
“I want enough money to keep living here in my home. I’ve got simple needs. I’ve got no interest in travelling; I just want to stay here, grow veggies, and play golf.” Peter age 66.
What's the first step for people concerned that their retirement income won't meet their basic needs?
“The first step is to have a solid understanding of how much you expect to spend in retirement,” says financial adviser and retirement planning expert, Regan Welburn.
“Completing a budget planner to work out how much you’ll need for essentials, and discretionary spending will certainly help.”
“The next step is to understand all the income options available to you, and how much you could receive from them,” Welburn says. “Understanding how to invest to help meet your basic needs will then become clearer, and a comprehensive investment portfolio can be developed to help address any concerns.”
Do people who have more expensive plans for retirement need to do anything differently?
“Sometimes the amount that can be spent even from a relatively high savings amount can be less than you’d expect,” Welburn says.
It’s important to understand the risks that might affect your finances in retirement. While no two retirement plans are the same, everyone faces the same key risks:
• Longevity risk: the risk of living longer than expected
• Market risk: the impact of varying returns on your investments
• Inflation risk: the risk that the cost of living may increase over time
“These retirement risks mean that if you only invest in market-linked investments, such as via an account-based pension, there is a real chance that you may be unable to cover your regular expenses in late retirement,” Welburn says.
I want to be sure my money will last as long as I do
“I want to be able to support our three children as they move into adulthood, whether assisting with their first rental or providing some deposit on a home. But I’m worried I’ll run out of money.” Steve age 60.
“One day I will be old and then I probably won’t spend as much ... that’s the theory.” Mary age 69.
“I’m happy to go downhill financially, but I want to do it slowly.” Peter age 66.
What would you say to people who are concerned about running out of money later in life?
“Many people worry about outliving their savings,” Welburn says. “With an increasing life expectancy in Australia that’s no surprise.”
"But statistics show that spending tends to slow later in retirement, and the Age Pension is designed to act like a safety net. Ongoing government income support increases as your overall assets and income reduce. I structure many client portfolios to have the Age Pension doing as much of the ‘heavy lifting’ as possible. By maximising Centrelink entitlements, we reduce the reliance on utilising your own savings to fund retirement. This provides the perfect hedge against longevity risk.”
What role could a lifetime annuity play?
There are many possible sources of income in retirement, from the Age Pension to dividends. The key is to get them all working together to ensure your basic living expenses are covered for life, with anything left over to do the things you want to do.
A lifetime annuity – a form of investment that guarantees payments for life – can be an important part of your strategy.
“There are many investment products that can be used to help you achieve your individual goals,” Welburn says. “A mix of defensive and growth options may be suitable. Complementing these investments could be a lifetime annuity that provides regular payments for life, regardless of how long you live. This could help give you peace of mind that you’ll always have an income to help cover your living costs.”
* names have been changed.
This article first appeared on www.msn.com